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This paper studies determinants of risk premia using anon-parametric term-structure model of the corporate spread. Themodel, which measures the extra return of defaultable corporatebonds on their government counterparts, involves the rate ofinflation, a key macroeconomic variable that is found to explain thespread non-linearly. This study shows that non-linear methods are useful to investigate features of credit risk and that they give better resultsthan their linear counterparts, enabling testing of affineterm-structure specifications. The paper also shows how the non-linear model can be used to forecast the future course of the spread.

Item Type: MPRA Paper -

Original Title: A non-parametric investigation of risk premia-

Language: English-

Keywords: risk premium, corporate spread, default, additive models, non-parametric estimation.-

Subjects: G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest RatesC - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C14 - Semiparametric and Nonparametric Methods: GeneralE - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy-

Author: Peroni, Chiara

Source: https://mpra.ub.uni-muenchen.de/15010/

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